The article implies that Americans can not handle their own finances without the government constantly watching their back. I'd rather the country fail than have a bureaucratic telling me what I can do with my earned money.

No time right now to read the article, but my experience with Krugman is that, while once a brilliant (labor?) economist, he has become a political hack.

 

As for Reagan causing the bubble, I digress. First of all, IMO, the bubble is caused by the Executive Branch using the Federal Reserve as a political tool. Interest rates are the free markets way of adjusting to consumer demand. If consumers are demanding the save now and spend later, the interest rate will decrease (due to an increase in loanable funds), causing long-term investment projects to become more profitable. If consumers are demanding to spend now, then interest rates will increase (due to a decrease in loanable funds) but current consumption will remain high.

 

The Federal Reserve, however, attempts to give us high consumption and high capital investment projects. This is by constantly lowering the interest rate. However, since the market interest rate is a response to consumer demand, artificially lowering it doesn't reflect the consumers' wishes. By trying to keep consumption and capital spending above their natural level, you cause a bubble, which eventually must burst.

 

This constant lowering of rates is due to a tremendous amount of pressure from the political party in power, who aims to keep unemployment and inflation low for purposes of political motivation. Worse so, every time the fed lowers interest rates (by purchasing bonds from the banks using printed money), this causes each and every one of the dollars we hold to become worth less real money. Each American is forced to invest in risky markets to try to provide for their own retirement due to the fact that the dollar has lost so much value (i.e. since the Fed's inception in 1913, it has lost 95% of its value), which causes a plethora of problems.

 

So if the article is saying that Reagan is the only President who lowered interest rates AND the bubble didn't burst for 20 years, then perhaps he is right. Unfortunately for Krugman's political views, this isn't true.

 

Furthermore, the spending under Reagan was A) caused by congressional Democrats retracting on a deal made with the President to limit spending B) tremendous military spending after Carter spent less on the military than any President we've ever had (although I wouldn't mind someone checking this number) and C) is still less than a lot of Presidents has a % of GDP; for example, non-military spending under GWB was highest as a % of GDP since FDR (hey Republicans, don't you just LOVE a large Federal government :lol:).

 

So I have a difficult time placing all the blame on Reagan, who is probably the greatest President of his century. Then again, it would probably help if I actually read the article :lol: (P.S. I sure do feel like LN lately- I can't keep my posts under the length of a John Steinbeck novel)

 

Did a little digging for you CCH. Here's some websites:

 

This one has a graph that shows actual dollars spent: http://www.mtholyoke.edu/~jephrean/classweb/United%20States.html

 

This timeline and graph shows defense spending from the 50's to present with the rise and fall of spending:

http://www.google.com/search?q=History+of+defense+spending+in+the+united+states&hl=en&tbs=tl:1&tbo=1&ei=M6InSvjaKI-Jtgeb4PHiBg&sa=X&oi=timeline_result&ct=title&resnum=11

 

This timeline specifically targets the 70's including the Carter era (see top line). Best part of these pages are the linked articles that spoke about the decrease/increase of the day:

 

http://www.google.com/search?q=History+of+defense+spending+in+the+united+states&hl=en&sa=X&tbo=1&tbs=tl:1,tll:1970,tlh:1979&ei=a6MnSvepJ-PBtwe3lb21Bg&oi=timeline_histogram_main&ct=timeline-histogram&cd=5

 

 

This last link had the most interesting tables that outlined Spending based on 1) realtionship to GDP and 2) relationship to Discretionary Spending.

 

http://www.truthandpolitics.org/military-relative-size.php#gdp-graph

 

 

It is obvious the military spending went down under Carter (but remember he was just post-Vietnam spending and the numbers are similar to post-WW II spending) and went up towards the end of his tenure. Likewise the 90's went down and later up but this was immediately post Cold War/Persian Gulf.

 

Not trying to make a defense of anyone in this, just thought I'd throw out the numbers that cch thought would be good to look at. :thumb:

The biggest cause of our current economic problems is in my opinion simply capitalism and its cycles. Capitalism encourages risk taking to increase individual wealth. The risk taking got out of control and created this mess we are in. Just part of the normal cycle of capitalism in my opinion made worse by risk taking gone out of control. Great example on Page 1 of today's WSJ. A pension fund of the Springield Mo. firefighters and police, in an attempt to maximize its return invested in a NYC skyscraper. The fund administators gambled that the NYC real estate investment would pay big rewards, much bigger reward than if they had invested their funds more conservatively. They lost on that gamble. Home buyers and home flippers gambled that their real estate investments would continue to appreciate and they'd make big profits. They gambled and over extended themselves. They lost. Bond rating agencies started rating secured mortgage deals to make big fees, when they knew little about the vehicles. They took on too much risk and they lost. Bond insurance companies did the same, with the same result. Rather than sticking with what they knew, they chased the fees and profits into an area that they knew little about and are paying for it. Banks made loans to businesses that 10 years ago were not deemed creditworthy and didn't require the loans to be properly structured to protect the bank because if they had done so, another bank would have got the deal.

 

Sorry folks, but in my opinion, people are trying to place too much blame on politicians, when in reality, the down turn is just part of the normal capitalism cycle. What makes this down turn so much worse is the fact that people/firms/institutions ignored risk management principles to maximize returns and got way over leveraged due to the fact that there was so much money in the global market place that made it way too easy to get financing for even the most hairbrained concept.

 

There is a time when the big risk takers make out like a bandit and there is a time when the big risk takers get their fingers burned. There is a time when conservative investors like myself miss out on big profits and there is a time when conservative investors keep their wealth and survive. We are just in the latter part of the cycle right now. The big risk takers will learn their lesson for a while and when the economy recovers will be more prudent for a while. But eventually the lure of making bigger profits will once again cause them to foresake prudent risk management principles and the cycle will repeat itself again.... and again....and again.

 

The desire to make huge profits (greed if you will) is truly blinding to some people. This economic mess should have been foreseeable to anyone one that paid any attention to the numbers and had any knowledge of capitalism and economic cycles. What really surprised me was the fact that a lot of the supposedly smart financial folks didn't see this coming and continued to take bigger and bigger risks, which made the downturn a lot worse than it should have been. A couple of my banking clients saw it coming and really tightened up their credit policies 5 plus years ago. Others did not. All one has to do is look at the current profit numbers of banks and it's easy to see which banks were smart enough to see it coming and which ones were not.

 

So while it may be the rage to blame this and that politician, in my opinion that's chasing windmills and ignoring personal responsibility. We, the people that bought homes with 100% financing and ran up big credit card and other debt, yet ignored the possibility that there would be a downturn in the economic cycle; we, the people that approved loans to people and businesses that couldn't weather any economic downturn; we, the business leaders that over leveraged our businesses with debt for acquisitions and expansions; and we, the people that chased exhorbitant fees, returns and profits while ignoring prudent risk management principles are the ones to blame. Not the politicians.

The biggest cause of our current economic problems is in my opinion simply capitalism and its cycles. Capitalism encourages risk taking to increase individual wealth. The risk taking got out of control and created this mess we are in. Just part of the normal cycle of capitalism in my opinion made worse by risk taking gone out of control. Great example on Page 1 of today's WSJ. A pension fund of the Springield Mo. firefighters and police, in an attempt to maximize its return invested in a NYC skyscraper. The fund administators gambled that the NYC real estate investment would pay big rewards, much bigger reward than if they had invested their funds more conservatively. They lost on that gamble. Home buyers and home flippers gambled that their real estate investments would continue to appreciate and they'd make big profits. They gambled and over extended themselves. They lost. Bond rating agencies started rating secured mortgage deals to make big fees, when they knew little about the vehicles. They took on too much risk and they lost. Bond insurance companies did the same, with the same result. Rather than sticking with what they knew, they chased the fees and profits into an area that they knew little about and are paying for it. Banks made loans to businesses that 10 years ago were not deemed creditworthy and didn't require the loans to be properly structured to protect the bank because if they had done so, another bank would have got the deal.

 

Sorry folks, but in my opinion, people are trying to place too much blame on politicians, when in reality, the down turn is just part of the normal capitalism cycle. What makes this down turn so much worse is the fact that people/firms/institutions ignored risk management principles to maximize returns and got way over leveraged due to the fact that there was so much money in the global market place that made it way too easy to get financing for even the most hairbrained concept.

 

There is a time when the big risk takers make out like a bandit and there is a time when the big risk takers get their fingers burned. There is a time when conservative investors like myself miss out on big profits and there is a time when conservative investors keep their wealth and survive. We are just in the latter part of the cycle right now. The big risk takers will learn their lesson for a while and when the economy recovers will be more prudent for a while. But eventually the lure of making bigger profits will once again cause them to foresake prudent risk management principles and the cycle will repeat itself again.... and again....and again.

 

The desire to make huge profits (greed if you will) is truly blinding to some people. This economic mess should have been foreseeable to anyone one that paid any attention to the numbers and had any knowledge of capitalism and economic cycles. What really surprised me was the fact that a lot of the supposedly smart financial folks didn't see this coming and continued to take bigger and bigger risks, which made the downturn a lot worse than it should have been. A couple of my banking clients saw it coming and really tightened up their credit policies 5 plus years ago. Others did not. All one has to do is look at the current profit numbers of banks and it's easy to see which banks were smart enough to see it coming and which ones were not.

 

So while it may be the rage to blame this and that politician, in my opinion that's chasing windmills and ignoring personal responsibility. We, the people that bought homes with 100% financing and ran up big credit card and other debt, yet ignored the possibility that there would be a downturn in the economic cycle; we, the people that approved loans to people and businesses that couldn't weather any economic downturn; we, the business leaders that over leveraged our businesses with debt for acquisitions and expansions; and we, the people that chased exhorbitant fees, returns and profits while ignoring prudent risk management principles are the ones to blame. Not the politicians.

 

BINGO!!! We have a winner. And it will happen again in the future. It is the nature of the beast.:thumb:

BINGO!!! We have a winner. And it will happen again in the future. It is the nature of the beast.:thumb:

 

Thanks Gunner.

 

When a couple buys a home without a sizable down payment and fails to consider what might happen if a bread winner loses his/her job, that's not Reagan's or Clinton's or any other President's fault.

 

When a couple buys a home with a low short term interest rate that they can afford, but fails to consider if they can afford a much higher interest rate when it adjusts, that's not Reagan's or Clinton's or any other President's fault.

 

When a couple buys a home with the intent to refinance it in a couple of years, but fails to consider the possibility that the real estate value could decrease at the time of re-financing, that's not Reagan's or Clinton's or any other President's fault.

 

When a lender lends money to that couple without considering those possibilities, that's not Reagan's or Clinton's or any other President's fault.

 

When investors buy securities securitized by those home loans without considering those possibilities, that's not Reagan's or Clinton's or any other President's fault.

 

When investors make big gambles to get big returns on investments and lose, that's not Reagan's or Clinton's or any other President's fault.

 

When business owners way over leverage themselves with debt and there is a slow down in the economy that causes them to be unable to service that debt, that's not Reagan's or Clinton's or any other President's fault.

 

Unfortunately, way too many of us forgot or ignored many principles that our parents and grandparents held close and near to their heart: pigs get fat, hogs get slaughtered; if you can't pay for it in cash, don't buy it; never run out of cash, for they throw you out of the game if you don't have cash; it's not what's on the shelf that matters, it's what's in the pantry; if it's too good to be true, it's not true; only use credit to buy something you have to have, not something you want to have; etc.

 

Fortunately, the hardships we are as a nation are incurring will bring those principles back into play. People and business will rein in their spending. People won't buy the biggest house they can obtain financing on. People and business will forego the riskier investements. Saving will increase and people will become more financially stable and secure. Eventually though that will result in the ability and desire to increase risk taking and have excessive spending, and the cycle will begin all over again. And much like the swallows will return to Capistrano each year, when that happens, we will again want to blame someone else but ourselves for the pain we feel and politicians will be the likely target.

LN's nailed it, too. The current US economy is like getting drunk. You can drink a lot, but you are going to get a hangover. It is better to use moderation- that way, you'll only have a slight headache. The recessions and expansions will be milder and manageable.

 

Problem is, our Federal Reserve is like that one buddy who, despite the fact that you are already blacked out, is telling you to chug this bottle of Kentucky Tavern. By constantly lowering interest rates, they get you more and more drunk. Eventually, though, you pass out, and the hangover is brutal. You lose your job, your girlfriend, everything. That's what we are experiencing now. If we had just stopped drinking (manipulating the rates) than we'd be in a minor recession but still have great lives.

Thanks Gunner.

 

When a couple buys a home without a sizable down payment and fails to consider what might happen if a bread winner loses his/her job, that's not Reagan's or Clinton's or any other President's fault.

 

When a couple buys a home with a low short term interest rate that they can afford, but fails to consider if they can afford a much higher interest rate when it adjusts, that's not Reagan's or Clinton's or any other President's fault.

 

When a couple buys a home with the intent to refinance it in a couple of years, but fails to consider the possibility that the real estate value could decrease at the time of re-financing, that's not Reagan's or Clinton's or any other President's fault.

 

When a lender lends money to that couple without considering those possibilities, that's not Reagan's or Clinton's or any other President's fault.

 

When investors buy securities securitized by those home loans without considering those possibilities, that's not Reagan's or Clinton's or any other President's fault.

 

When investors make big gambles to get big returns on investments and lose, that's not Reagan's or Clinton's or any other President's fault.

 

When business owners way over leverage themselves with debt and there is a slow down in the economy that causes them to be unable to service that debt, that's not Reagan's or Clinton's or any other President's fault.

 

Unfortunately, way too many of us forgot or ignored many principles that our parents and grandparents held close and near to their heart: pigs get fat, hogs get slaughtered; if you can't pay for it in cash, don't buy it; never run out of cash, for they throw you out of the game if you don't have cash; it's not what's on the shelf that matters, it's what's in the pantry; if it's too good to be true, it's not true; only use credit to buy something you have to have, not something you want to have; etc.

 

Fortunately, the hardships we are as a nation are incurring will bring those principles back into play. People and business will rein in their spending. People won't buy the biggest house they can obtain financing on. People and business will forego the riskier investements. Saving will increase and people will become more financially stable and secure. Eventually though that will result in the ability and desire to increase risk taking and have excessive spending, and the cycle will begin all over again. And much like the swallows will return to Capistrano each year, when that happens, we will again want to blame someone else but ourselves for the pain we feel and politicians will be the likely target.

:thumb::thumb::thumb::thumb::thumb:

Another thought- if deregulation is the culprit, then how come the fall of Fannie Mae and Freddie Mac, two of the most regulated entities ever, happened right before the crisis started? Why did their regulation not save them?

Nothing on the above, no surprise there. Anyways, sorry to keep bringing this thread up, but I can't read about economics without finding something terrible that Paul Krugman, Nobel Prize winner and supposed expert on market economics, has said.

 

In response to the recession of 2001, which coincided with the bursting of the Nasdaq bubble, Paul Krugman's 2002 op-ed in the New York Times offered us this brilliant advice:

 

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

 

Thanks Paul! I'm sure Reagan deserves the blame for this brilliant idea of yours!

That's pretty funny right there.